Investments Ch 2 Flashcards
Units of ownership of a corporation. Owners typically are entitled to vote on the selection of directors and other important matters. They may receive dividends. It is the most junior security.
Common stock
________ refers to the market value of the company.
Capitalization
______ are the companies with market values exceeding 10 billion.
Large cap stocks
_______ range between 10 billion and 2 billion.
Mid cap stocks
______ stocks or anything less than 2 billion.
Small cap
_________ generally reflects companies with market values less than 300 million.
Micro cap stocks
Quarterly reports from corporate management to the SEC
10Qs
Annual reports from corporate management to the SEC
10Ks
A _______ is a preliminary prospectus.
Red herring
A _______ is for potential buyers of a new issue.
Prospectus
Hybrid security that resembles both equity and debt. Typically issued at $25 par or $100 par with a stated dividend rate. Pays a fixed dividend rate because it is often perpetual, its duration is normally infinite. Does not “mature”.
Preferred stock
When interest rates change, price, fluctuations in preferred stock often ______ those of bonds.
Exceed
Preferred stock
When dividend payments are missed, ________ shares will pay all dividends in full before any payment of dividends to common stockholders is allowed. With ________ shares, missed dividends, do not have to be made up.
Cumulative/non-cumulative
What type of entity is most likely to buy preferred stock?
Regular C corporations because they can take advantage of the 50% or more dividend exclusion from taxation.
For preferred stock that pays annual dividends, if those dividends are to be “qualified” the stockholder must own the stock for _______ days in 181 day period that begins 90 days before the ex dividend date
90
Receipts, for the shares of a foreign based corporation held in the vault of a US Bank. They entitle the shareholder to all dividends. Prices are quoted in US dollars and dividends are paid in US dollars but declared in the currency of the country of origin.
American depository receipts
True or false
ADR holders may receive foreign tax credits for income tax paid to a foreign country.
True
If the dividend distributed by the foreign or incurs tax to the foreign government, a US investor may generally receive a corresponding tax credit.
A security, representing a basket or index of stocks or bonds. May operate as an open end or closed-end fund, traded on a stock exchange. Generally more tax efficient than traditional open and mutual funds.
Exchange traded funds ETFs
Can be bought and sold during the trading day. Marketable. Non-liquid (subject to market risk). Impose no sales load, but brokerage commissions generally apply. can trade at a premium or discount from its net asset value although arbitrage tends to keep the Price close to its NAV.
ETFs
An investment company with no day-to-day portfolio management. Typically an unmanaged security portfolio created by a sponsor and handled by an independent trustee. It is a passive investment as it’s assets are not traded, but frozen it collects income, and eventually repayment of principal. It is self liquidating, because as the funds are received, they are not reinvested, but are distributed to unit holders sponsor makes a market for investor, selling units and buyers of “used“ units. The units are generally redeemed at NAV.
Unit investment trust
UIT
Open end investment companies. Continue to sell shares to investors after the initial offering that starts the fund. The capitalization of an open end investment company is continually changing as new investors by additional shares, and other current shareholders redeem shares back to the company. The shares are nonnegotiable, redeemable securities.
Mutual funds
These funds issue stock once, then the books are “closed“. No new shares or issued. The shares then trade on an exchange and valued like any other negotiable security.
Closed-end investment companies
